The Economic Benefits of our Irish Weather

We all talk about the weather. However, in Ireland, we don’t do extremes as they do in other countries. Galway is located at approximately 53 degrees North of the equator. That is the same latitude as Edmontain Canada, where it’s hitting -15C this week, and is over 10 degrees more northerly than Boston, Massachuetts. Over recent weeks, Boston has has experienced record cold temperatures and snowfall, whereas our winter has been quite mild so far. On the other hand, this week’s temperatures in Chad will hit highs over 40C.The issue whether economies are worse off with extreme cold or extreme heat is, therefore, a topical one.

This issue has generated quite an amount of research. A recent paper by Deryugina and Hsiang (2014)* has got quite an amount of attention, having conducted a rigorous quantitative analysis to map the relationship between extreme temperatures and incomes in the United States. The authors test the hypothesis that incomes in wealthy countries are insulated from environmental conditions as individuals have the resources needed to adapt to their environment (with air-conditioning or central heating, for example). Given that the United States is the wealthiest economy in human history, it is a good test of this hypothesis. In a nutshell, the authors find that hot days are worse for the economy.

The authors use within-county (small geographical areas in the US) variation in weather to estimate the effect of daily temperature on annual income in United States counties over a 40-year period. The authors find that temperature has a significant impact on economic performance: productivity of individual days declines roughly 1.7 per cent for each 1 °C increase in daily average temperature above 15 °C. Moreover, a weekday above 30 °C costs an average county $20 per person. Hot weekends have little effect, presumably because productivity is not as important. Interestingly, despite climate-controlled buildings and other innovations, this temperature effect has not changed since 1969. Hot days reduce growth both because of negative impacts on agriculture and because it seems that, despite air conditioning, people simply work less efficiently when it’s hot. This research topic has broad implications for everything, ranging from climate change to the macro-history of the world to housing policy and regional development.

In Ireland, the Deryugina and Hsiang effect is likely to be absent. The highest temperature ever recorded in Ireland was 33.3 °C at Kilkenny Castle on 26 June 1887. As we know, summer temperatures exceed 30 °C very rarely (only twice since 2010, as it happens). Therefore, for all our complaints about the weather, it has a silver lining in the form of not being bad for our economy over time.

*Does the Environment Still Matter? Daily Temperature and Income in the United States, Deryugina and Hsiang, NBER Working Paper No. 20750, December 2014.